Key Moments
- USD/JPY is trading without clear direction just under 159.00 amid softer Japanese inflation data.
- Japan’s February headline and core CPI dropped to near four-year lows, but underlying inflation still exceeds the BoJ’s fiscal 2026 projection of 2.2%.
- Strong outcomes from spring wage talks are viewed as supporting a potential 25 bps BoJ rate hike to 1.00% at the April 28 meeting, with a 62% probability priced in.
Market Overview
Brown Brothers Harriman’s (BBH) Elias Haddad reports that USD/JPY is trading in a largely sideways fashion just below 159.00. This comes as the latest inflation figures from Japan show a temporary loss of momentum in February, even as expectations point to a renewed pickup in the coming months.
Inflation Softens but Stays Above BoJ’s Medium-Term View
According to Haddad, Japan’s inflation slowed in February, with both headline and core consumer price measures undershooting expectations and falling toward multi-year lows. Nonetheless, the underlying price trend remains firmer than the Bank of Japan’s medium-term outlook.
“USD/JPY is directionless just under 159.00. Japan inflation slows in February before expected to rebound in the months ahead. Both headline and core CPI ex. fresh food fell more than anticipated to near four-year lows at 1.3% y/y (consensus: 1.5%, prior: 1.5%) and 1.6% y/y (consensus: 1.7%, prior: 2.0%), respectively.”
“The decline reflected the government’s measures to reduce the household burden of higher energy prices. Excluding energy and fresh food, CPI dipped 0.1pts to a 13-month low at 2.5% y/y (consensus: 2.6%) but is still tracking above the Bank of Japan’s (BoJ) fiscal 2026 projection of 2.2%.”
Wage Negotiations Underpin Expectations for April Rate Hike
Haddad points out that the outcome of Japan’s latest spring wage negotiations is a key factor supporting the case for further BoJ policy normalization. Solid wage dynamics are seen as reinforcing stickier underlying inflation pressures and strengthening the justification for higher interest rates.
“The solid results from Japan’s latest spring wage talks point to sticky underlying inflation and justify the BoJ resuming raising rates at the next April 28 meeting (25bps hike to 1.00% is 62% priced-in).”
“Rengo members, Japan’s largest union federation, are demanding an average wage increase of 5.94% this year vs. 6.09% last year. This is the third straight year of worker’s pay gains demand exceeding 5%.”
Key Data Points at a Glance
| Indicator | Latest Reading | Consensus | Prior | Additional Detail |
|---|---|---|---|---|
| Headline CPI (y/y) | 1.3% | 1.5% | 1.5% | Near four-year low |
| Core CPI ex. fresh food (y/y) | 1.6% | 1.7% | 2.0% | Near four-year low |
| CPI ex. energy and fresh food (y/y) | 2.5% | 2.6% | Not specified | 13-month low; above BoJ fiscal 2026 projection of 2.2% |
| BoJ fiscal 2026 CPI projection | 2.2% | Not applicable | Not applicable | Benchmark for underlying inflation |
| Rengo average wage demand (current year) | 5.94% | Not applicable | 6.09% (previous year) | Third consecutive year above 5% |
| Implied probability of 25 bps BoJ hike to 1.00% at April 28 meeting | 62% | Not applicable | Not specified | Pricing referenced by BBH |
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